Create a real estate note; sell for cash. Assume you locate a property that is on the market for $50,000, and it has an existing $40,000 assumable mortgage.
The seller’s equity is $10,000, which is the down payment required to buy the property. The property has been on the market for four or five months without selling, and the owner is getting anxious. Offer the seller $6,000 cash contingent upon being able to locate a new second mortgage. If the seller accepts that, you will proceed to find a lender to loan you $6,000 in return for a mortgage.
Banks and savings and loans are reluctant to take second mortgage loans on investment property like this because the property already has a loan for 80% of its value. Therefore, you will probably have to go to a private lender. Check the classified ad section in your local newspaper. You will find that there are private lenders who advertise that they will buy mortgage notes for cash. Call one of these lenders and tell them that you have a property that is appraised for $50,000, if it is, has an existing $40,000 first mortgage on it, and you are in need of $6,000 cash. Ask them how large a real estate note and mortgage would have to be and what the interest rate and term would be for them to give you $6,000. Assume they respond by telling you they would need a $7,500 note and mortgage at 12% interest for a term of five years. You would then determine, by doing a financial analysis of the property, whether or not the net operating income would support the payments on this new second mortgage and assuming the existing mortgage. If it does, you would proceed with the transaction, and in effect, buy the property no money down.
| Example Summary Technique #14 | |
| Create A Real Estate Note; Sell For Cash | |
| What You Need To Begin: | |
| Good Credit | |
| Summary Of Terms: | |
| Asking Price | $50,000 |
| Mortgage | $40,000 |
| Seller’s equity | $10,000 |
| Property was on the market for a while and the seller is anxious | |
| Procedures: Real Estate Note | |
| Offer the seller $6,000 contingent on locating a new second mortgage. | |
| Find lender to loan $6,000 | |
| Look in classifieds of local newspaper for private lenders. | |
| Determine through a financial analysis if the N.O.I. would support the second mortgage and assumable mortgage. | |
| If so, buy; if not keep looking. | |
| Results: | |
| The seller receives cash for the equity in the property. | |
| The buyer has a no money down transaction. |
| Specific Situations to Apply Technique #14 |
| The Property |
| Property Offered Below Market |
| Owned Free and Clear No Mortgages |
| The Buyer |
| Lump Sum Cash Due Soon |
| Large Monthly Income |
| You Know People with Cash to Invest |
| The Seller |
| Needs All Cash for Equity |
| Outstanding Financial Obligations |
| Large Capital Outlay Coming Up |
| Must Sell Immediately |
Real Estate Note To Investment Partners